Alternative Investment

Why Brookfield Corporation Stock Fell 33% in December

What happened

Shares of Brookfield Corporation (BN 1.68%) were cut by one-third in December, according to data provided by S&P Global Market Intelligence

However, that’s a bit deceiving because the company split off a 25% interest in its asset management business, Brookfield Asset Management, and distributed it to shareholders via a unique 1-for-4 stock split. Still, even adjusting for that split, shares were down sharply last month, due partly to troubles at rival Blackstone

So what

Brookfield Corporation completed the long-awaited split-off of a portion of its asset management business last month. The company formed that business unit more than 20 years ago to capitalize on growing investor demand for alternative investment opportunities, like private equity funds, real estate, and infrastructure. Brookfield grew into one of the largest alternative asset managers in the world, with over $750 billion of assets. 

Unfortunately, investors weren’t giving it much credit for the value it created, which led the company to split off a 25% interest in that entity via a 1-for-4 stock split. As a result of that transaction, Brookfield Corporation stock lost a quarter of its value as it transferred Brookfield Asset Management shares directly to its shareholders. 

The split also led Brookfield Corporation to reset its quarterly dividend from $0.14 per share to $0.07 per share. It also set Brookfield Asset Management’s quarterly dividend rate to $0.32 per share. Overall, investors who continue holding shares of both companies will receive what would equate to $0.15 per share of dividends each quarter in 2023, a 7% increase from the prior level. 

However, the split wasn’t the only factor contributing to Brookfield’s slide last month. Rival Blackstone was under a lot of pressure in December after it had to limit redemptions for its non-traded REIT, Blackstone Real Estate Income Trust (BREIT), following a flood of repurchase requests from investors who sought to cash in on their shares. BREIT has been a big growth driver for Blackstone in recent years, leading Brookfield to create its own non-traded REIT, Brookfield Real Estate Income Trust. Blackstone’s issues caused concerns that alternative asset managers might not grow as fast as expected in the future if retail investors don’t continue investing in these products.

Now what

Brookfield Corporation’s shares were under pressure last month because it spun off its asset manager and reset its dividend. That move led some investors to sell their shares. In addition, Blackstone’s issues weighed on the entire alternative asset management sector last month.

However, Brookfield spun off a portion of its asset manager to unlock its value. Because of that, shares should recover from last month’s sell-off as investors begin to value that entity like Blackstone and other alternative asset managers. That makes the stock look like an attractive buy right now.

Matthew DiLallo has positions in Blackstone, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has positions in and recommends Blackstone, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool recommends Brookfield. The Motley Fool has a disclosure policy.

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